BOEHM, Justice.
We conclude that a claim of breach of a covenant not to reproduce
a copyrighted writing appears to be preempted by federal copyright law. Although
such a claim asserts rights under the Copyright Act, it may be asserted
as a counterclaim in a state court and is not within the exclusive
jurisdiction of the federal courts.
We would be happy to be corrected on the first of these points
of federal law, as we can see no persuasive policy reasons why the
Greens should not be permitted to assert their contract claim under state law.
As the Seventh Circuit noted in ProCD, Inc. v. Zeidenberg, 86 F.3d
1447, 1454 (7th Cir. 1996), contract rights exist only against the parties to
the agreement, not against the world at large. The desire for nationwide
uniformity in the law of copyright would not seem to be seriously disturbed
by an occasional holding from a state court turning on the peculiarities of
a given contract or a given states law of contract interpretation. Nevertheless,
we conclude that prevailing federal law treats such a state law claim as
preempted by the Copyright Act.
As to the jurisdiction of a state court to entertain such a claim,
at the time this case arrived at our Court we regarded the federal
authorities cited in this opinion as requiring us to force bifurcated litigation by
finding exclusive federal jurisdiction over the Greens counterclaim. However, we think the
recent decision of the Supreme Court of the United States in Holmes Group,
Inc. v. Vornado Air Circulation Sys., Inc., __ U.S. __, 122 S. Ct.
1889 (2002), implies that there is no exclusive federal jurisdiction over this claim.
Accordingly, we reverse the trial courts grant of partial summary judgment to
Hendrickson.

Factual and Procedural Background

In 1985, Hendrickson Publishers, Inc. contracted for a ten-year term to publish and
distribute books to which Mary and Jay Green claimed the copyright. These
books were compilations of cross-references among works in the public domain, e.g., cross-references
from Hebrew words appearing in the Bible to a Bible-study guide defining those
words. As the end of the contract term approached, Hendrickson notified the
Greens that the publishing agreement would not be renewed. In 1995, the
parties entered a termination agreement that outlined procedures for wrapping up the parties
relationship.
In 1999, Hendrickson initiated this action in Tippecanoe Superior Court seeking monies due
from the Greens for books sold on account. The Greens counterclaimed, alleging,
inter alia, that Hendrickson infringed the Greens copyrights by continuing to print and
sell the Greens books after the original agreement expired. The Greens then
removed the action to federal court, based on the exclusive federal jurisdiction over
copyright claims. The federal court remanded the action because a defendants counterclaim
based on federal law does not confer federal court jurisdiction. Rather, the
basis for removal must appear on the face of the plaintiffs complaint.
Back in state court, the Greens amended their counterclaim, and in a single
count alleged the following:
3. Hendrickson Publishers, Inc. violated the terms of the parties agreement:

A. By failing to give notice to Green when a book was
out of print.
B. By failing to timely provide updated reports on the status of
books in stock.
C. By failing to timely pay royalties due pursuant to the parties
agreement. In particular, a royalty payment due November 30, 1995 was not
paid until January of 1996.
D. By continuing to print additional copies of the books covered by
the 1985 agreement.

Hendrickson filed a motion for partial summary judgment, asserting that paragraphs 3(C)to the
extent it concerned books published after the original agreement expiredand 3(D) were based
on the federally preempted copyright claim and were now merely couched as claims
for breach of contract. At a hearing on the motion, the Greens
contended that their agreement prohibited Hendrickson from publishing the compilations under its own
name and required Hendrickson to pay royalties to the Greens. Therefore, the
Greens argued, their claims arose under state law because they were based on
the parties agreement, independent of the Greens rights under federal copyright law.
Hendrickson countered that the books it published in alleged violation of the agreement
were not the same as those produced by the Greens, an issue Hendrickson
claimed could only be resolved by a federal court applying federal copyright law.
The trial court agreed the claims were preempted, and entered summary judgment
for Hendrickson on the offending portions of the counterclaim. The trial court
then stayed the proceedings to permit the Greens to pursue an interlocutory appeal.
The Court of Appeals reversed, holding that the copyright issues were merely
tangential to the contract claims, and the trial court had jurisdiction over the
offending portions of the counterclaim. Green v. Hendrickson Publishers, Inc., 751 N.E.2d
815, 824-25 (Ind. Ct. App. 2001). This Court granted transfer.
Hendrickson describes its motion to dismiss these claims as based on the contention
that the Copyright Act has preempted the claims and therefore the state courts
have no jurisdiction over it. We think this formulation conflates the issues
of jurisdiction and preemption. Otherwise stated, one issue is whether the Greens
have a valid state law claim. A second question is what court
may entertain the Greens claim. If federal law preempts the rights asserted,
the Supremacy Clause prevents a state from creating such a claim, and an
attempt to assert it in any court, state or federal, fails for failure
to state a claim, not lack of jurisdiction. If, however, we are
to treat an attempt to assert a state law claim that is preempted
as presenting a federal claim, albeit a disguised one, then we are presented
with the issue of the state courts jurisdiction over that federal claim.

I. Copyright Infringement or Breach of Contract?

The first issue is whether the offending portions of the counterclaim may be
heard as state law breach of contract claims as the Court of Appeals
held, or if they are in fact federally preempted copyright infringement claims.
Although there was for a long time a body of state copyright law,
in 1976 Congress federalized the field of copyright. One aspect of that
action was the provision of section 301(a) of the Copyright Act that preempted
state law legal or equitable rights if they are equivalent to any of
the exclusive rights within the general scope of copyright. 17 U.S.C. §
301(a) (1994). There is no doubt about the desire of Congress to
preempt the field as fully as possible. As the House Report put
it:
The intention of section 301 is to preempt and abolish any rights under
the common law or statutes of a State that are equivalent to copyright
and that extend to works coming within the scope of the Federal copyright
law. The declaration of this principle in section 301 is intended to
be stated in the clearest and most unequivocal language possible, so as to
foreclose any conceivable misinterpretation of its unqualified intention that Congress shall act preemptively,
and to avoid the development of any vague borderline areas between State and
Federal protection.

H.R. Rep. No. 94-1476, at 130 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5746.
Federal courts track section 301 in applying a two-pronged preemption analysis. A
state civil action is preempted if (1) the work at issue is within
the subject matter of copyright as defined in sections 102 and 103 of
the Copyright Act, and (2) the state law created right is equivalent to
any of the exclusive rights within the general scope of copyright as specified
in section 106. Natl Car Rental Sys., Inc. v. Computer Assocs. Intl,
Inc., 991 F.2d 426, 428 (8th Cir. 1993). Here, the parties agree
the first prong of the test is satisfied, but debate the equivalency issue.
Whether a state right is equivalent to rights under federal copyright law is
itself a question of federal law: it turns on the meaning of that
term as used in 17 U.S.C. § 301(a). A right sought under
state law is equivalent to the exclusive rights under copyright if the right
in question is infringed by the mere act of reproduction, performance, distribution or
display. Id. at 431 (citing 1 Nimmer on Copyright § 1.01[B][1], at
1-13). However, if an extra element is required by the state created
right, either instead of or in addition to the acts of reproduction, performance,
distribution or display, then the state right is not preempted. Id.
The Greens, relying principally on ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th
Cir. 1996), contend the parties agreement provides the extra element necessary to avoid
preemption of their claims, effectively converting what would be an infringement claim against
a stranger to the contract into a breach of contract claim against Hendrickson
in its capacity as a promisor. Prevailing federal authority is against the
Greens on this point of federal law. First, although the court in
ProCD did state that a simple two-party contract is not equivalent to any
of the exclusive rights within the general scope of copyright, the court was
addressing the enforcement of shrinkwrap licenses purporting to govern the use of computer
software. Id. at 1455. These licenses included a variety of terms
beyond a simple covenant not to reproduce the work. In particular, there
was no claim that the alleged infringer had purchased and reproduced the software
without authorization. The claim was that the shrinkwrap license authorized only the
noncommercial use of the consumer version of the program, and the user had
applied it for commercial purposes. Id. at 1450. In ProCD itself,
the court found it prudent to refrain from adopting a rule that anything
with the label contract is necessarily outside the preemption clause: the variations and
possibilities are too numerous to foresee. Id. at 1455. Accordingly, although
this case has been taken by some to hold that any contract supplies
the necessary extra element, we agree with the courts that have rejected the
view that ProCD stands for the universal proposition that no breach of contract
action would ever be barred by § 301 [of the Copyright Act].
See, e.g., Ballas v. Tedesco, 41 F. Supp. 2d 531, 536-37 n.14 (D.N.J.
1999). Further, to the extent ProCD suggests that no state contract claim
is preempted, that decision has met with harsh criticism. As one leading
commentator on copyright has noted, ProCD relied on three other cases, each involving
contract rights significantly broader than the simple promise not to reproduce.
See footnote Accordingly,
none supports the broad conclusion that the Seventh Circuit ascribes to them.
1 Nimmer on Copyright § 1.01[B][1][a], at 1-20. Thus, pre-emption should continue
to strike down claims that, though denominated contract, nonetheless complain directly about the
reproduction of expressive materials.
Id. at 1-22.
We conclude that federal law does not regard the rights the Greens seek
to vindicate under their agreement with Hendrickson as qualitatively different from their federal
copyright law rights. A naked promise not to infringe a copyright does
not provide the extra element necessary to avoid preemption because that promise is
so inextricably entwined with the copyright that to permit the promisee to sue
upon it would undermine the preemption feature of the Copyright Act. Selby
v. New Line Cinema Corp., 96 F. Supp. 2d 1053, 1060 (C.D. Cal.
2000). In this case, the Greens allege Hendrickson violated the parties agreement
by continuing to print additional copies of the books covered by the 1985
agreement. Thus, if any breach of contract occurred, it was accomplished by
the wrongful reproduction of the works, and violated no other provision of the
contract. The agreement therefore provided the Greens with no rights they did
not already enjoy under copyright law, and no element other than reproduction was
needed to state a claim for a violation of those rights. Accordingly,
federal law appears to preempt this claim, and the only relief available to
the Greens is the relief they originally sought: vindication of their rights under
the Copyright Act.

II. Does a Counterclaim Give Rise to a Civil Action Subject to Exclusive
Federal Jurisdiction under 28 U.S.C. § 1338?

Because federal law appears to preempt the Greens claims, taking their counterclaim at
face value as grounded in state contract law, it fails to state a
claim. The issue then becomes whether, if the counterclaim is to be
treated as a claim under the Copyright Act, it is cognizable in a
state court. If it is not, the resulting forced bifurcation of litigation
was a reason the Court of Appeals noted in supporting state court jurisdiction
by regarding the claim as one under state law. Green, 751 N.E.2d
at 824.
The federal district courts have original jurisdiction over all civil actions arising under
the Constitution, laws, or treaties of the United States. 28 U.S.C. §
1331 (1994). This federal question jurisdiction is not exclusive, however, and state
courts may entertain claims based on federal law in the absence of a
provision reserving exclusive jurisdiction to the federal system. Grubb v. Pub. Util.
Commn, 281 U.S. 470, 476 (1930). For purposes of removal of an
action from state court to federal court, the United States Supreme Court has
long held that the presence or absence of federal question jurisdiction is governed
by the well-pleaded complaint rule, which provides that federal jurisdiction exists only when
a federal question is presented on the face of the plaintiffs properly pleaded
complaint. Rivet v. Regions Bank of La. et al., 522 U.S. 470,
475 (1998); see also Louisville & Nashville R. Co. v. Mottley, 211 U.S.
149, 152 (1908). A defendants defense is not part of a properly
pleaded statement of the plaintiffs claim, so a case may not be removed
on the basis of a federal defense. Id. Similarly, a defendant
cannot render a case removable to federal court by pleading a counterclaim asserting
a federal claim. Takeda v. Northwestern Natl Life Ins. Co., 765 F.2d
815, 822 (9th Cir. 1985). Thus, the Greens could not remove this
action to federal court based upon the allegations raised in their counterclaim, and
for that reason the federal district court remanded the case when removal was
attempted.
Because of the well-pleaded complaint rule, the Greens counterclaim did not confer federal
jurisdiction over this case, and their effort to remove it to federal court
failed. The Court of Appeals nevertheless correctly observed that there is no
jurisdictional bar to the Greens assertion of their federal copyright claim as a
separate lawsuit in federal court under the copyright jurisdiction. Green, 751 N.E.2d
at 824. Indeed, Hendrickson concedes this point and relies on it in
urging that preclusion of state court jurisdiction does not deprive the Greens of
a forum altogether.
See footnote
If Hendrickson is correct, separate lawsuits in state and
federal court would be required where a defendant in a state court action
seeks to assert rights under federal copyright law. This is true even
if, as in this case, the copyright claim arises out of the same
transaction or occurrence as the plaintiffs complaint and would be a compulsory counterclaim
under Federal Rule of Civil Procedure 13 or its Indiana counterpart, Trial Rule
13.
Whether the Greens may assert a federal claim in state court is governed
by federal law. The federal Judicial Code confers original jurisdiction on the
federal district courts in any civil action arising under any Act of Congress
relating to patents, plant variety protection, copyrights and trademarks. 28 U.S.C. §
1338(a) (1994). That jurisdiction is exclusive of the courts of the states
in patent, plant variety protection and copyright cases. Id. Thus, for
the Greens counterclaim to be cognizable by a state court, it must not
be asserted in a civil action arising under any Act of Congress relating
to . . . copyrights as that phrase appears in section 1338(a).
We are aware of no federal authority explicitly addressing whether a counterclaim in
a state court gives rise to a civil action as that term is
used in section 1338(a). The conclusion that a state counterclaim converts a
lawsuit into a civil action arising under the Copyright Act seems highly anomalous
in view of the fact that 28 U.S.C. § 1331, conferring general federal
question jurisdiction, uses the very same term civil action arising under other laws
of the United States to include only those meeting the well-pleaded complaint test.
Nevertheless, until very recently the logic and language of a consistent body
of federal decisions appeared to preclude a state court from entertaining a counterclaim
under copyright law.
The leading case on this point was Aerojet-Gen. Corp. v. Mach. Tool Works,
Oerlikon-Buehrle, Ltd., 895 F.2d 736 (Fed. Cir. 1990). Pursuant to 28 U.S.C.
§ 1295(a), the Federal Circuit has exclusive appellate jurisdiction over patent appeals from
the district courts if the jurisdiction of [the district court] was based, in
whole or in part, on section 1338. In Aerojet, the Federal Circuit
held that for purposes of determining appellate jurisdiction over patent cases, a compulsory
counterclaim in a federal court should be treated as a complaintthat is, as
a separate civil action that may be appealed only to the Federal Circuit.
Aerojet did not directly address the status of a state court counterclaim.
However, the Federal Circuit quoted Schwarzkopf Dev. Corp. v. Ti-Coating, Inc., 800
F.2d 240, 244 (Fed. Cir. 1986), to the effect that the patent counts
of a counterclaim could not have been filed in the state court and
[a]djudication of a patent counterclaim is in the exclusive province of the federal
courts. 895 F.2d at 740. The court concluded that the counterclaim
was a separate, well-pleaded claim with its own jurisdictional basis in section 1338.
Id. at 742. Although reaffirming the well-pleaded complaint requirement for federal
district court jurisdiction, Aerojet nevertheless held that the jurisdiction of the district court
over the patent counterclaim was in part grounded on section 1338. Id.
at 745. Aerojet was cited with approval by the Seventh Circuit.
U.S. Valves, Inc. v. Dray, 190 F.3d 811, 813 n.6 (7th Cir. 1999).
In DSC Communications Corp. v. Pulse Communications, Inc., 170 F.3d 1354, 1359
(Fed. Cir. 1999), the Federal Circuit extended the Aerojet holding to include permissive
counterclaims as well. The crux of the Aerojet holding was that if
a counterclaim has its own jurisdictional basis for purposes of section 1338(a), then
it is also governed by the provision of section 1338(a) that confers exclusive
jurisdiction on the federal courts. Accordingly, under Aerojet a counterclaim asserting patent
rights that, if placed in a complaint, would be required to be filed
in federal court, may not be entertained by a state court.
Although the statement in Aerojet that a patent counterclaim could not have been
filed in the state court was dicta, it seems to reflect the common
understanding of the federal courts on this point of federal law. A
leading commentator took the same position. Chisum on Patents § 21.02[1][e], at
21-91 n.129. A number of state courts have also reached the conclusion
that they may not entertain a counterclaim asserting a claim that would be
within section 1338 if filed as a complaint, although it is not clear
whether they did so on the basis of federal law or under state
doctrines.
See footnote
All of the foregoing is, we think, trumped by the Supreme Courts ruling
in
Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., __ U.S. __,
122 S. Ct. 1889 (2002). In Holmes, the Supreme Court rejected the
Federal Circuits reasoning that it would be incongruous to confer exclusive appellate jurisdiction
on the Federal Circuit when a well-pleaded patent infringement claim was undertaken in
a complaint but not when the identical claim was asserted in a counterclaim.
Id. at 1893. Rather, the Supreme Court rested on the language
of section 1338 and found its use of the familiar arising under phrase
to incorporate the well-pleaded complaint test that governs federal jurisdiction under section 1331.
Holmes reaffirmed the established rule that a patent counterclaim did not confer
original or removal jurisdiction on a federal district court, and squarely held that
the Federal Circuits appellate jurisdiction under section 1295(a) is congruent with the original
exclusive jurisdiction of the district court under section 1338. Holmes seems clearly
to reject the contention that civil action arising under has a different meaning
under section 1338(a) from the well-pleaded complaint requirement of section 1331. The
only basis for concluding that a state court may not entertain patent or
copyright counterclaims is the exclusive jurisdiction conferred by section 1338 over any civil
action arising under the patent or copyright laws. A counterclaim under those
laws does not fall within that language. Holmes teaches that what Congress
saidnot what it intendedis controlling here: Our task here is not to determine
what would further Congresss goal of ensuring patent-law uniformity, but to determine what
the words of the statute must fairly be understood to mean. Id.
at 1895. Accordingly, we think Holmes requires us to reject the federal
authorities stating or implying that a state court may not entertain a counterclaim
under patent or copyright law.
We think it makes no difference that Holmes was a patent case, not
one dealing with copyright. Apparently copyright was not regarded as raising the
same forum shopping issues that gave rise to the reservation of exclusive jurisdiction
over patent appeals to the Federal Circuit. As a result, the appellate
jurisdiction statutes are different for patent and copyright cases. Holmes dealt with
the appellate jurisdiction of the Federal Circuit but tied that jurisdiction to the
original exclusive jurisdiction of the federal district court. Copyright and patent jurisdictions
are identical at the district court level. Both are set forth in
the same federal statute in the same terms. Accordingly, we think Holmes
controls this case under copyright law.
We conclude that a copyright counterclaim is not subject to the exclusive jurisdiction
provision of section 1338, and the authorities stating that such a claim could
not have been filed in the state court are no longer prevailing federal
law.

Conclusion

The grant of partial summary judgment in favor of the plaintiffs is reversed.
This case is remanded to the trial court.

SHEPARD, C.J., and DICKSON, SULLIVAN, and RUCKER, JJ., concur.

Footnote:
In Natl Car Rental, the court explicitly relied on the extra element
rule to find that a contractual provision prohibiting the use of computer software
to process data for third parties was qualitatively different from a contract that
could be breached by the mere act of reproduction, performance, distribution or display.
991 F.2d at 433. In Taquino v. Teledyne Monarch Rubber, 893
F.2d 1488, 1501 (5th Cir. 1990), the contract at issue prohibited Taquino, an
independent contractor who sold and managed services for Teledyne, from representing a competing
company prior to termination of his relationship with Teledyne, a restriction that again
meets the extra element rule and clearly is not the equivalent of a
copyright claim. Likewise, in Acorn Structures, Inc. v. Swantz, 846 F.2d 923,
926 (4th Cir. 1988), the contract at issue contained an implicit provision that
if a prospective homeowner used Acorns home design plans, he was obligated either
to purchase the plans from Acorn or to purchase his building materials from
Acorn, a provision that does not arise out of the subject matter of
copyright and is therefore a separate and distinct cause of action.
Footnote:
Although the Court of Appeals was correct in observing that there is
no jurisdictional bar to the Greens asserting a federal copyright claim as a
separate lawsuit in federal court under the copyright jurisdiction, the court expressed concern
that if the Greens did so, the state and federal compulsory counterclaim rules
could act as a bar to the separate action if it arises out
of the transaction or occurrence that is the subject matter of the opposing
partys claim. Green, 751 N.E.2d at 824 (quoting Fed. R.Civ.P. 13(a) &
Ind. Trial Rule 13(A)). Because we find state court jurisdiction over the
Greens counterclaim to be proper for the reasons given below, we agree that
claim preclusion could prevent the Greens from presenting their claim in a separate
suit. We do not agree that that would be the case if
the state court had no jurisdiction over the Greens counterclaim. Although it
is true that the subject matter of the Greens counterclaim and the as
yet unfiled federal copyright claim are logically related and presumably arise out of
the same transaction or occurrence, if the state court had no jurisdiction over
the subject matter of the counterclaim, it cannot be compulsory within the meaning
of Rule 13. See Marrese v. Am. Acad. of Orthopaedic Surgeons, 470
U.S. 373, 382 (1985) ([C]laim preclusion generally does not apply where [t]he plaintiff
was unable to rely on a certain theory of the case or to
seek a certain remedy because of the limitations on the subject matter jurisdiction
of the courts. (quoting Restatement (Second) of Judgments § 26(1)(c) (1982))).
Footnote:
See Pleatmaster, Inc. v. Consol. Trimming Corp., 156 N.Y.S.2d 662, 666 (N.Y.
Sup. Ct. 1956) (holding counterclaim is equivalent to affirmative action brought by litigant
and relief requested is of the same nature as judgment demanded in complaint,
so state court does not have jurisdiction over counterclaim raising federally preempted patent
issues); Tewarson v. Simon, 750 N.E.2d 176, 183 (Ohio Ct. App. 2001) (holding,
without discussion of nature of counterclaim, court does not have jurisdiction over counterclaim
for declaratory judgment of exclusive right to publish, as counterclaim arises under Copyright
Act); Superior Clay Corp. v. Clay Sewer Pipe Assn, 215 N.E.2d 437, 440
(Ohio Ct. Common Pleas 1963) (holding, without discussion of nature of counterclaim, court
does not have jurisdiction over counterclaim for patent infringement, because the main issue
of the counterclaim is a matter not of state law but of federally
preempted patent law). Compare Am. Home Prods. Corp. v. Norden Labs., Inc.,
No. 11615, 1992 Del. Ch. LEXIS 262, at *8-10 (Del. Ch. Dec. 9,
1992), which principally relies on Pleatmaster, but buttresses its argument with a state
law analysis of a counterclaim as an independent action.